Option Investor

Daily Newsletter, Thursday, 12/17/2015

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Fed Driven Gains Gone

by Thomas Hughes

Click here to email Thomas Hughes
The market gave up yesterday's Fed driven gains as focus shifts back to economic data and earnings.


It looked at first as if there would be some follow through to yesterday's Fed driven rally but it didn't happen. Volatile oil prices and a quadruple witching options expiration both played a part in erasing all of yesterday's gains. Oil prices fell hard on oversupply and high storage levels to retouch the long term lows set earlier this week.

International markets were higher in today's session, led by our rally post-FOMC announcement. Asian and European indices made gains greater than 1% in most cases, led by the German DAX 2.57%. The positive vibe carried over into our markets, at least through the early pre-market session, with little data or other news to impact the early part of today's session.

Market Statistics

Futures trading was mild all morning, positive but only barely so. The S&P 500 was indicated to open with gains of only a few points, the Dow about 30. These levels held right up and into the open at which time the indices posted gains as early indications suggested. This lasted for about 5 minutes and then a steady sell-off began that took them down to hit the morning low, near -1%, just after 11:15AM. The low held for most of the day but a round of selling late in the day set a new low and left the indices at the lows of the day when the closing bell sounded.

Economic Calendar

The Economy

Unemployment claims were in line with expectations. On an adjusted basis initial claims fell -11,000 to 271,000 from last week's not revised figure. On a not adjusted basis they fell -18.7%, more than the -15.3% predicted by the seasonal factors, and -4.5% lower than last year at this time. The four week moving average of adjusted claims also fell, by -250, to 270,750. The states with the largest increases in claims were California, New York and Pennsylvania with gains of 22,487, 13,113 and 12,021. The states with the largest decreases in claims were Kentucky and Arkansas with declines of -1,256 and -533. While still above the long term low and the moving average initial claims remain low compared to historic levels, near the long term low and consistent with healthy labor markets.

Continuing claims also fell, shedding -7,000 to hit 2.238 million. This is from a slight upward revision to last week of 2,000. The four week moving average of continuing claims rose however, adding 16,250 to hit 2.199 million. Continuing claims are above the moving average and off the recently set lows but remain near the long term low and consistent with labor market health.

Total claims posted what at first looks like an astonishing increase but when compared to historical data and expectations is not to alarming. Total claims gained 419,000 to hit 2.353 million and an 8 month high. This is an increase of 22%. Last year, in the comparable week, claims jumped 423,000 or 19.6% to hit 2.576 million. This years number, in that light, is not surprising, in line with expectations and down -8.6% year over year. We are entering a seasonal period of increased lay-offs so expect to see all the unemployment claims numbers rise over the next few weeks. The thing to watch will be how high they rise, how long they remain elevated and to what levels they retreat come the spring.

The Philadelphia Federal Reserve Manufacturing Business Outlook Survey was released at 8:30AM and was weaker than expected. The diffusion index fell nearly 8 points to -5.9 from last month's reading of 1.9, analysts had been expecting it to rise slightly to 2.0. Within the data new orders fell 6 points to -9.5 while shipments and employment both made gains. Shipments rose 6 points to 3.7 while both gauges of labor rose. Employment rose 2 points to 4.1 and hours worked rose a whopping 22 points to 5.5, its first positive reading in three months. Most disturbing is the fall in future indicators. The diffusion index of future conditions fell 23 points to 20.4. Outlook remains positive but at three year lows.

The Index of Leading Indicators rose by 0.4%, better than the expected 0.2% and down from last months 0.6%, showing the economy is expanding in December at a slightly slower rate than last month, but faster than expected. The Coincident Index rose by 0.1%, down from last months 0.2% and the lowest level in three months. The Lagging Index rose by 0.3%, up a tenth from last months 0.2%.

There are no economic releases tomorrow. Next week the calendar is light but includes the third revision to 3rd quarter GDP, existing and new home sales, durable goods and personal income.

The Oil Index

Oil prices tanked, no pun intended, with WTI and Brent both near 11 year lows. A stronger dollar had something to do with it but the underlying fundamentals are what's really to blame. Supplies and production are high, demand is low and there is little to suggest that situation is going to change soon. Next year, maybe, but in the next few weeks I don't think so. Prices may not fall much further but there is still no reason to get bullish on oil.

The Oil Index fell about -2% and looks like it will retest 1,050 if not move down to support targets between 1,000 and 1,025. Today's candle helps confirm resistance at the 1,100 level with low oil prices dragging the index down. The indicators are both bearish and pointing lower although there is some sign that support will hold or at least produce a bounce before being broken. MACD and stochastic are both bearish but momentum is weakening and stochastic is reaching oversold conditions so a bounce, relief rally or consolidation is highly likely once support is reached.

The Gold Index

Gold produced one of those wow moves that you think might happen but are still surprised when they actually do. The FOMC not only strengthened the dollar, they reduced inflation expectations, or at least alleviated fear of rising inflation, for the immediate future. This combination has sent gold back to its long term low with spot prices falling more than $25 or 2.5% to $1,050. Gold is now trading at support with bearish outlook. If the data starts to look like the Fed could raise rates at a quicker pace than expected gold could move to new lows.

The gold miners fell along with gold, the miners ETF GDX shedding more than -5.5%. Even with today's decline the ETF remains above its long term low but looks set to test it and soon. The prevailing trend in the sector is down and the indicators have just confirmed a trend following move so support at the low could easily be broken, especially if gold falls below $1,050. Current downside target is $13, a break below that could take it down to $12.50 or $12.

In The News, Story Stocks and Earnings

The dollar got a big lift from the FOMC rate hike. The Dollar Index gained nearly 1.5% today and broke back above the short term moving average. The index looks set to retest resistance at the recent high near 100.50. The indicators are rolling into a bullish signal, in line with the underlying trend in the index, so this move could be strong. Policy between the ECB and FOMC has officially diverged and this could drive the dollar index to new highs.

There were a couple of big stories in the news today; first the dirt. The CEO of Turing Pharmaceuticals, the guy who made the news when he jacked up the price of a commonly used drug, Martin Shkreli, got arrested. Not for his role as head of Turing, but for frauds he committed while head of hedge fund MSB Capital Management and later at Retrophin Inc. The gist of the story is that the hedge fund lost millions and tha Shkreli paid back investors with funds looted from Retrophin. KaloBios, a company Shkreli recently invested in, had its shares halted in pre-market trading due to volatility related to the arrest.

RiteAid reported earnings this morning and beat consensus by a penny. The company reported earnings of $0.06 on income of $373 million. Total earnings are up $40.4 million and driven by an increase in comp store sales of 0.9%. The company reaffirmed guidance for 2016 in a range around consensus saying they were “comfortable” with it. Shares of the stock jumped nearly 1% in the pre-market session only to fall during the day to post a loss at the close. RiteAid is involved in a possible buy-out by Walgreens for $9 a share announced at the end of October. The deal is expected to close late next year and is pending shareholder and regulatory approvals.

Disney. Star Wars opens tonight and is expected to post the largest box office opening weekend sales ever. Pre-sales have already topped $200 million and, according to Fandango, ticket sales have already surpassed their all-time record. I know I've go my ticket, I'm going on Saturday. This movie is going to be a huge hit for Disney across its entire footprint. They've already said there will be one movie a year indefinitely, they've got the toys, the TV, the merchandise, amusement parks the works. Shares of the stock fell -1.25% in today's session, dropping below the short term moving average, but appear to be moving higher in the near term. Resistance is near $115, if broken the stock could go to $120.

Redhat reported earnings after the bell. The open source software provider reported better than expected on the top and bottom lines. The results were driven by increased subscription revenues, up 22%, and deferred revenue, up 14% , with total revenues up 15% from last year. Results were good enough for execs to up guidance to a range more in line with consensus and sent shares of the stock shooting up more than 5% in after hours trading.

The Indices

Today's losses were led by the Dow Jones Industrial Average drop of -2.00%. The transports created a long black candle falling from the 7,750 level confirming resistance at previous support. The indicators are bearish and pointing lower so a test of 7,500 is likely with a chance of a move to 7,250. Looking back over the past few months it looks like 7,500 could be a bottom so a move below it could lead to further selling.

The next biggest decline was only -1.50%, posted by the S&P 500. The broad market created a long black candle and dark cloud cover pattern that could lead to another test of support along the long term trend line. The indicators are mixed but remain consistent with a market trading above support. First target for support is between 2,015 and 2,030 with a possible move down to 2,000.

The Dow Jones Industrial Average fell -1.43% and closed at the low of the day. Today's candle completely encompasses yesterday's and appears to confirm resistance above 17,600. The indicators are mixed however, consistent with a trading range or consolidation, so the depth of any downside movement is questionable. Support target is near 17,250 and the bottom of the 2 month range. A break below this level could take the index down to 16,750 and the long term up trend line.

The NASDAQ Composite made the smallest gain in today's session. The tech heavy index lost -1.35% and broke the short term 30 day moving average to end the day just above the long term up trend line. The indicators are pointing lower, consistent with lower prices, so a test of the trend line is looking likely. A break below the trend line could take the index down 4,950 or 4,900 in the near term.

They did it, the FOMC has raised rates and erased the uncertainty of when they would. Now we can begin to worry about when the next one will be but I think it safe to assume we have a meeting or two before that happens. Until then the focus will return to the fundamentals, the data and the earnings.

The fundamentals have been altered, if every so slightly, and it will take a little time to see how that will affect the economy and this could produce some market volatility. The economy is still in uptrend and expectations for next year are still positive so I am still bullish overall. The question is if expansion is hot enough for the economy take another rate hike, or need another rate hike, or if the recovery will falter. As for earnings, we've got another bad season to look forward to but this could be the last one of negative growth for a while so any earnings driven market down turn is a buying opportunity in my view.

Today's action was probably influenced by quadruple witching options expiration more than anything else. Expiration is tomorrow, tomorrow's action could be the same and may easily see a continuation of today's move, or a swing back to yesterday's high, or both.

Until then, remember the trend!

Thomas Hughes

Annual End of Year Subscription Special

It is that time of year again when we offer the best prices of the year on a package of our top newsletters. If you have been a subscriber for several years you know this is the best price and best deal of the year.

Please follow the link below to see for yourself the EOY subscription special for 2016. You will not be disappointed!

New Option Plays

Finding Strength In Healthcare

by James Brown

Click here to email James Brown


Charles River Labs. Intl. - CRL - close: 79.38 change: -0.17

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 426 thousand
Entry on December -- at $---.--
Listed on December 17, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: Yes, see below

Company Description

Trade Description:
Non-insurance healthcare stocks have been showing relative strength. CRL is up nearly +33% from its early October low. It's also up +24.7% for the year when the S&P 500 is now down -0.8% for 2015.

According to the company, "Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them."

The earnings picture has been improving. CRL reported Q2 results on July 30th. They missed estimates by a penny but management raised their 2015 guidance above Wall Street estimates.

Their performance improved in the third quarter. CRL announced their Q3 results on November 4th. Analysts were expecting $0.94 a share on revenues of $340 million. CRL beat on both counts. Earnings were $1.03 a share, a +16% improvement from a year ago. Revenues were up +6.7% to $349.5 million. If you back out negative foreign currency headwinds then CRL's Q3 revenues were up +12.2%. Management raised their full-year guidance above analysts' estimates again.

You can see on the daily chart how shares of CRL rallied on its Q3 report and optimistic outlook. Since then investors have been buying the dips near support. This week the stock has broken out to new eight-month highs. Shares are flirting with a bullish breakout past round-number resistance at $80.00. Tonight we are suggesting a trigger to buy calls at $80.40 with an initial stop loss at $77.75. More nimble traders may want to wait for a possible dip and buy calls in the $78.00-78.50 region instead. Officially our entry trigger is $80.40.

Trigger @ $80.40

- Suggested Positions -

Buy the FEB $85 CALL (CRL160219C85) current ask $2.10
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Give Back FOMC Gains

by James Brown

Click here to email James Brown

Editor's Note:

Yesterday stocks produced a very broad-based relief rally following the Fed's first rate hike in nearly a decade. Today the market erased its post-FOMC gains with a widespread reversal lower.

BDX hit our bullish entry trigger. FFIV hit our stop loss.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 102.34 change: +0.75

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.6%
Average Daily Volume = 2.2 million
Entry on December 15 at $103.02
Listed on December 12, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

12/17/15: After underperforming the market the last couple of sessions shares of ABC reversed higher and outperformed with a +0.73% gain. The rest of the market essentially erased Wednesday's +1.5% rally.

ABC still has short-term resistance in the $103.00 area. No new positions at this time.

Trade Description: December 12, 2015:
Stocks had a rough week but ABC has been showing relative strength. Shares of ABC are now up three out of the last four weeks and up six sessions in a row. Considering how ugly the stock market was last week, ABC looks pretty attractive.

ABC is in the services sector. According to the company, "AmerisourceBergen is one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. With services ranging from drug distribution and niche premium logistics to reimbursement and pharmaceutical consulting services, AmerisourceBergen delivers innovative programs and solutions across the pharmaceutical supply channel in human and animal health. With over $135 billion in annual revenue, AmerisourceBergen is headquartered in Valley Forge, PA, and employs approximately 18,000 people. AmerisourceBergen is ranked #16 on the Fortune 500 list."

The company reported their 2015 Q3 results on July 23rd. They beat Wall Street estimates on both the top and bottom line. Revenues were up +12.8%. Management forecasted full-year 2015 income growth in the 20-to-22% range.

Fast-forward to late October and ABC reported another strong quarter. The company announced their 2015 Q4 results on Oct. 29th. Wall Street was expecting a profit of $1.18 a share on revenues of $34.5 billion. ABC beat estimates again with a profit of $1.21 a share. Revenues were up +12.3% to $35.47 billion. Management raised their 2016 earnings and revenue guidance above analysts' estimates. They're now forecasting 2016 revenue growth of +8% to +10%.

Last month ABC raised their dividend by 17% to $0.34 a share. Normally raising the dividend is a sign of confidence by management. Meanwhile Citigroup analyst Robert Buckland recently listed ABC as one of his top 28 value stocks in the U.S. market (for 2016).

Technically shares bottomed in October after a three-month plunge from resistance in the $115 area. Now ABC has a bullish trend of higher lows. The last few days have seen ABC produce a technical breakout past round-number resistance at $100 and technical resistance at its 100-dma. The point & figure chart is bullish and forecasting at $122 target. Tonight we are suggesting at trigger to launch bullish positions at $102.85.

- Suggested Positions -

Long FEB $105 CALL (ABC160219C105) entry $3.10

12/16/15 new stop @ 99.85
12/15/15 Caution - ABC has produced a bearish engulfing candlestick reversal pattern
12/15/15 triggered on gap higher at $103.02, trigger was $102.85
Option Format: symbol-year-month-day-call-strike

Becton, Dickinson and Company - BDX - close: 155.91 change: +0.02

Stop Loss: 150.85
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
Average Daily Volume = 1.0 million
Entry on December 17 at $156.35
Listed on December 16, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/17/15: BDX continued to rally on Thursday and hit a new high at $157.50. Our trigger to buy calls was hit at $156.35. Unfortunately the market's widespread sell-off today weighed on the stock. BDX gave back its gains to close nearly unchanged on the session. At this point I'd wait for a new rally above $156.50 before considering new bullish positions.

Trade Description: December 16, 2015:
The stock market's big bounce this week has lifted the S&P 500 index back into positive territory for the year (currently up +0.7%). Healthcare stocks have outperformed with the XLV healthcare ETF up +6% year to date. BDX has doubled that with a +12% gain this year.

BDX is part of the healthcare sector. They are in the medical instruments and supply industry. According to the company, "BD is a leading medical technology company that partners with customers and stakeholders to address many of the world's most pressing and evolving health needs. Our innovative solutions are focused on improving medication management and patient safety; supporting infection prevention practices; equipping surgical and interventional procedures; improving drug delivery; aiding anesthesiology and respiratory care; advancing cellular research and applications; enhancing the diagnosis of infectious diseases and cancers; and supporting the management of diabetes. We are more than 45,000 associates in 50 countries who strive to fulfill our purpose of 'Helping all people live healthy lives' by advancing the quality, accessibility, safety and affordability of healthcare around the world. In 2015, BD welcomed CareFusion and its products into the BD family of solutions."

Their acquisition of CareFusion was a big deal. According to JP Morgan, they believe that BDX's purchase of CareFusion should transform the company into one that will "comfortably hit double-digit EPS growth over the next three to four years." The last couple of quarterly earnings report are definitely seeing the impact of the acquisition.

BDX's Q3 report, announced in early August, saw the company beat EPS estimates. Revenues were up +44.6% from a year ago. They raised 2015 guidance above Wall Street estimates into the $7.08-7.12 range. BDX also guided revenue growth in the +21-21.5% range.

The strong results continued in their fourth quarter. BDX announced its Q4 on November 4th. Analysts were looking for a profit of $1.90 a share on revenues of $3.03 billion. BDX beat both estimates. Earnings were $1.94 a share. Revenues were up +38.9% to $3.06 billion. Management guided for 2016 with earnings estimates in the $8.37-8.44 a share range. That's about +18% earnings growth over 2015. They expect revenues to grow +23-23.5% for the year.

The stock soared on its earnings report. BDX then spent the next few weeks consolidating gains. Now it looks like the bullish trend has resumed. The point & figure chart is very bullish and forecasting a long-term target at $209.00. Shares have been building on a bullish pattern of higher lows. Today's rally pushed BDX above resistance at $155.00. We see the breakout as an entry point. Tonight we are suggesting a trigger to buy calls at $156.35. Plan on exiting prior to earnings in February.

- Suggested Positions -

Long MAR $160 CALL (BDX160318C160) entry $3.84

12/17/15 triggered @ $156.35
Option Format: symbol-year-month-day-call-strike

Clovis Oncology - CLVS - close: 33.36 change: +0.83

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -27.6%
Average Daily Volume = 1.4 million
Entry on December 01 at $32.55
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/17/15: Bullish analyst comments on CLVS this morning sparked a rally at the open. Shares of CLVS surged +10.2% at its best levels of the session before paring its gains to just +2.5%.

The relative strength today is encouraging but I want to warn investors that today's move almost looks like a bearish double top when combined with its early December spike higher.

No new positions at this time.

Trade Description: November 28, 2015:
After a -70% plunge all the bad news might be priced in for this biotech stock.

CLVS is in the healthcare sector. According to the company, "Clovis Oncology is a biopharmaceutical company focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets. Our product development programs target specific subsets of cancer, and we seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients most likely to benefit from their use. We believe this approach to personalized medicine - to deliver the right drug to the right patient at the right time - represents the future of cancer therapy."

The company has three product candidates in their pipeline. They are rociletinib, rucaparib, and lucitanib. Right now the market is reacting to news on its rociletinib clinical trials, where the drug is being tested on non-small-cell lung cancer.

Several days ago the company issued an update on their Rociletinib NDA filing. CLVS held their regularly scheduled mid-cycle communication meeting with the U.S. Food and Drug Administration (FDA). The current data on the Rociletinib clinical trials was not good enough. The FDA is asking for more data to prove the treatment's efficacy. This will likely push back the time frame on any approval. Investors were expecting a potential approval in the March-April 2016 time frame.

The delay in Rociletinib approval is a serious setback. Rival biotech firm AstraZeneca just got FDA approval for a competing drug, Tagrisso. By the time Rociletinib is approved (if it's approved), it will face serious competition from an already established treatment.

CLVS is a perfect example of why biotech stocks can be high-risk trades. On November 13, 2015 the stock closed at $99.43. The next trading day, Nov. 16th, shares gapped down at $29.27 and closed near $30. The stock traded down to $24.50 on November 23rd and started to reverse higher. CLVS' stock is now up three days in a row.

The current rally could be a combination of short covering and investors bargain hunting. It has been a full two weeks since the sell-off. If investors were going to sell they probably did so already. We think this rebound has a lot further to go but make no mistake CLVS is still a higher-risk trade. Tonight we are suggesting a trigger to buy calls at $32.55.

- Suggested Positions -

Long JAN $35 CALL (CLVS160115C35) entry $2.90

12/14/15 new stop @ 30.75
12/05/15 new stop @ 29.65
12/01/15 triggered @ $32.55
Option Format: symbol-year-month-day-call-strike

Dr Pepper Snapple Group - DPS - close: 93.03 change: -1.05

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -24.5%
Average Daily Volume = 1.2 million
Entry on December 16 at $94.05
Listed on December 15, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/17/15: DPS, like most of the market today, gave back its post-FOMC rally from Wednesday afternoon. Shares slipped -1.1%. I'd keep an eye on the $92.00 level as potential short-term support.

Trade Description: December 15, 2015:
Huge beverage companies like Coca-Cola (KO) and Pepsi (PEP) used to be considered safe haven trades because consumers would continue to buy soft drinks no matter what the economy was doing. Things have changed. Now more and more consumers are avoiding high-calorie cola drinks. These companies have been forced to expand into non-cola product lines. KO and PEP are also suffering from the impact of the strong dollar, which makes their products more expensive overseas. Year to date KO is up +2% and PEP is up +5%. Smaller rival DPS is up +30% this year.

DPS is in the consumer goods sector. According to the company, "Dr Pepper Snapple Group is a leading producer of flavored beverages in North America and the Caribbean. Our success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. We have 6 of the top 10 non-cola soft drinks, and 13 of our 14 leading brands are No. 1 or No. 2 in their flavor categories. In addition to our flagship Dr Pepper and Snapple brands, our portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Penafiel, Rose's, Schweppes, Squirt and Sunkist soda."

One reason DPS is outperforming its peers is the company's focus on the U.S. Almost 90% of DPS' revenues are from the United States, which means the strong dollar doesn't really affect it very much. It doesn't hurt that business has been steadily growing. DPS has beaten Wall Street earnings estimates the last three quarters in a row. Their most recent earnings report was October 22nd. DPS announced their Q3 results with earnings of $1.08 a share. That was five cents above expectations. Revenues rose +3% to $1.63 billion, also above estimates. Management then raised their full year guidance above analysts' estimates.

The market reacted to its strong Q3 report and bullish guidance by launching DPS shares to new all-time highs. There was some normal post-earnings profit taking but investors have started consistently buying the dips in DPS' stock. Now shares are breaking out to new all-time highs again. Meanwhile Wall Street analysts have been raising their earnings estimates on the company, which is normally bullish.

Technically the stock is showing significant relative strength this year. The point & figure chart is bullish and forecasting at $124.00 target. Traders just bought the dip at round-number support near $90.00. DPS could benefit from some window dressing before the quarter ends on December 31st. If the Fed raises rates the dollar should rally. Investors looking to avoid the impact of the dollar might also see DPS as a buy. Today's intraday high was $93.84. I'm suggesting a trigger to buy calls at $94.05.

- Suggested Positions -

Long FEB $95 CALL (DPS160219C95) entry $2.98

12/16/15 triggered @ $94.05
Option Format: symbol-year-month-day-call-strike

Expedia Inc. - EXPE - close: 128.67 change: -2.49

Stop Loss: 127.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.5%
Average Daily Volume = 2.2 million
Entry on December 09 at $126.75
Listed on December 08, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/17/15: 2015 was the year of the FANG stocks. Facebook (FB), Amazon.com (AMZN), Netflix (NFLX), and Google (GOOG), now part of Alphabet. This group significantly outperformed the broader market. This morning an RBC Capital Markets analyst suggested that 2016 could be lead by BAGEL stocks. These are Alibaba (BABA), Amazon, Google, Expedia (EXPE), and LinkedIn (LNKD). Unfortunately, this bullish forecast failed to save EXPE from some profit taking and shares slipped -1.9%.

No new positions at this time.

Trade Description: December 8, 2015:
Consumer spending has been something of a disappointment this year. Yet travel is one of the few exceptions that continues to see strong consumer spending. Expedia is a major player inside the $1.3 trillion-a-year travel industry.

EXPE is in the services sector. According to the company, "Expedia, Inc. is one of the world's leading travel companies, with an extensive brand portfolio that includes leading online travel brands, such as: Expedia.com®, a leading full service online travel agency with localized sites in 32 countries. Hotels.com®, the hotel specialist that offers Hotels.com® Rewards and Secret Prices through its mobile booking apps and localized websites in more than 65 countries. Hotwire®, a leading discount travel site that offers Hot Rate® Hotels, Hot Rate® Cars and Hot Rate® Airfares, as well as vacation packages. Travelocity®, a pioneer in online travel and a leading online travel agency in the US and Canada. Orbitz Worldwide, a global travel portfolio including Orbitz, ebookers, HotelClub and CheapTickets, brands and business-to-business offerings, including Orbitz Partner Network and Orbitz for Business. Egencia®, a leading corporate travel management company Venere.com, an online hotel reservation specialist in Europe. trivago®, a leading online hotel search with sites in 52 countries worldwide. Wotif Group, a leading portfolio of travel brands operating in the Australia/New Zealand region, including Wotif.com®, Wotif.co.nz, lastminute.com.au®, lastminute.co.nz and travel.com.au®. Expedia Local Expert®, a provider of online and in-market concierge services, activities, experiences and ground transportation in hundreds of destinations worldwide. Classic Vacations®, a top luxury travel specialist. Expedia® CruiseShipCenters®, a provider of exceptional value and expert advice for travelers booking cruises and vacations through its network of 200 retail travel agency franchises across North America. CarRentals.com®, the premier car rental booking company on the web The company delivers consumers value in leisure and business travel, drives incremental demand and direct bookings to travel suppliers, and provides advertisers the opportunity to reach a highly valuable audience of in-market consumers through Expedia® Media Solutions. Expedia also powers bookings for thousands of affiliates, including some of the world's leading airlines, top consumer brands and high traffic websites through Expedia Affiliate Network."

EXPE has been very active at making deals. Earlier this year they completed the acquisition of Orbitz Worldwide, which combined the No. 2 and No. 3 travel-booking companies into a $6.7 billion giant. That still trails behind Priceline's $9.2 billion annual revenues.

About a month ago EXPE announced at $3.9 billion deal to buy HomeAway (AWAY). The deal is expected to close in Q1 2016 and when completed it will make EXPE a serious threat to Airbnb in the alternative accommodation business, where people rent out rooms and homes.

EXPE's most recent earnings report was October 29th. The company announced their Q3 earnings were $2.07 a share, which was 5 cents above estimates. Revenues were up +13.2% to $1.94 billion, just a hair below expectations. Wall Street applauded the results and shares of EXPE surged to new highs (see chart). Following EXPE's Q3 results a few analysts have raised their price target on the stock (new targets include $150 and $180 a share).

A few days before Thanksgiving the U.S. State Department issued a global travel alert warning Americans about the threat of terrorism. The government did not provide any real details and just urged citizens to be more vigilant and cautious, especially around large crowds and public transportation. Airline stocks and EXPE all spiked lower on this headline but there hasn't been any follow through.

Technically shares of EXPE are in an up trend. EXPE is off about 10% from its 2015 highs (late October-early November) but it is up +47% year to date, making it one of the best performing stocks this year. The last few weeks have seen EXPE bouncing along technical support at its rising 100-dma. It looks like this consolidation is about to end and EXPE could be poised for another sprint higher.

The Monday high was $126.50. Tonight we are suggesting a trigger to buy calls at $126.75. We will start with a stop loss below the 100-dma. The $131.00 area has been resistance in the past but we are looking for a rally toward its November highs (near $140).

- Suggested Positions -

Long JAN $130 CALL (EXPE160115C130) entry $3.80

12/15/15 new stop @ 127.85
12/09/15 triggered @ $126.75
Option Format: symbol-year-month-day-call-strike

Netflix, Inc. - NFLX - close: 122.51 change: -0.13

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
Average Daily Volume = 20.4 million
Entry on December 15 at $122.05
Listed on December 14, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/17/15: NFLX displayed some relative strength this morning with a rally of more than $3.00 at its best levels. Too bad the market was sinking and pulled NFLX down with it. Fortunately NFLX managed to close virtually unchanged on the session while the major market indices sank -1.5% instead.

No new positions at this time.

Trade Description: December 14, 2015:
If at first you don't succeed, try, try again.

Last week's surge in market volatility shook us out of our bullish NFLX trade. Today we want to try again.

Here is an updated play description:
Netflix has come a long way from its late 1990s roots as a DVD-rental-by-mail business. Today it is one of the largest online streaming video-on-demand businesses. The company's most recent earnings report was disappointing but failed to derail enthusiasm for the stock.

NFLX is part of the services sector. According to the company, "Netflix is the world's leading Internet television network with over 69 million members in over 60 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments."

Traditional media giants have been struggling with a massive change in consumer viewing habits. More and more people are "cutting the cord" with traditional cable television subscription packages. Case in point, Time Warner (TWX) just reported earnings this week and lowered their guidance as they expect more pay-TV subscribers to leave. That's because there are too many online streaming video options that are more competitive than regular cable services. NFLX has been a significant winner as people cut the cord.

NFLX is one of the market's best performers this year with a +167% gain year to date. Yet NFLX is not invincible. Doubts have been growing about NFLX's ability to keep growing and its rising costs. Their most recent earnings report is a good example.

NFLX announced their Q3 earnings results on October 14th. They missed Wall Street estimates on both the top and bottom line. Analysts were expecting a profit of $0.08 a share on revenues of $1.75 billion. NFLX delivered $0.07 a share. Revenues were up +23% to $1.74 billion. It wasn't a big miss but it was a miss. Furthermore NFLX management lowered their Q4 guidance below estimates. They now see Q4 earnings at $0.02 a share compared to estimates at $0.03.

One of the biggest disappointments was domestic subscriber growth. NFLX added 3.62 million subscribers globally. 2.74 million where international subscribers. The rest, 880,000 subs, were U.S. subscribers. That was significantly below analysts' estimates at 1.25 million.

NFLX partially blamed this subscriber miss on the credit card industry, which has been issuing new, more sophisticated credit cards with security chips in them. Essentially subscribers needed to update their billing info with the new card and that didn't happen, which produced more customer "churn". At least that is the story from NFLX. Credit card experts think this story is baloney and just a scapegoat for NFLX's poor growth.

Another challenge facing NFLX is growing competition. Amazon.com tries to dominate every market they are in. Their Amazon.com video streaming service is $99.00 a year (about $8.25/month) but this hasn't stopped NFLX's growth. Hulu has been a competitor in the online streaming video industry for years. They just launched a new ad free subscription service at $11.99 a month. According to Hulu, the customer response has been awesome but they are not releasing any numbers on how many people have signed up. Hulu's advantage over NFLX is being able to watch current season TV on their service. Yet another competitor for NFLX is YouTube. YouTube is launching a paid subscription service called YouTube Red for $9.99 a month. In spite of all the competition NFLX remains the dominant player and they continue to expand both in the U.S. and overseas. (FYI: new subscribers pay $9.99 a month for NFLX)

If missing earnings estimates and lowering guidance wasn't bad enough NFLX also told investors that they plan to raise additional capital next year (2016) to help "fund our continued content investments". That means more debt and could mean more stock (which dilutes shareholders). One of NFLX critics biggest arguments has been the company's rising expenses. Yet in spite of all these challenges NFLX's stock continues to perform. The point & figure chart is bullish and forecasting at $148 target.

In summary, the growth story for NFLX seems a little bruised with their missed subscriber numbers. They continue to spend a ton of money on content and expansion. Investors don't seem to care. The consumer trend of switching from traditional cable to streaming services is not going to reverse and that benefits NFLX.

I want to remind readers that NFLX has proven over and over that it is a very volatile stock. This can make it difficult to trade. I am suggesting small positions to limit risk.

Today saw shares of NFLX spike down toward its previous highs (prior resistance) and now new support in the $115.00 area. The stock bounced and shares rebounded back into positive territory. Technically this rebound looks like a short-term bottom. We are suggesting a trigger to buy calls at $122.05. We will start with a stop loss just below today's low.

- Suggested Positions -

Long JAN $130 CALL (NFLX160115C130) entry $3.75

12/15/15 triggered @ $122.05
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bunge Limited - BG - close: 64.04 change: +0.87

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: - 6.5%
Average Daily Volume = 1.0 million
Entry on December 03 at $64.85
Listed on November 21, 2015
Time Frame: Exit PRIOR January option expiration
New Positions: see below

12/17/15: I am suggesting caution on our BG trade. The stock is not cooperating. Shares displayed relative strength today with a +1.3% gain. Furthermore BG has closed above short-term technical resistance at its 10-dma with today's rally. Any serious follow through higher tomorrow could see BG hit our stop at $64.65.

No new positions at this time.

Trade Description: November 21, 2015:
BG's business is facing multiple headwinds and the stock has suffered for it. Shares are underperforming the market in a big way with BG down -17% from their late October high. The stock is down -29% from its 2015 highs.

BG is in the consumer goods sector. According to the company, "Bunge Limited (www.bunge.com) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York."

One of BG's biggest challenges is the strong dollar. This makes American products, including crops and commodities, more expensive overseas. Thus demand from foreign markets has been soft. Currencies issues have also been trouble with BG's business in Brazil, which has a slow economy and a weak currency. Meanwhile in the U.S. farmers are facing a larger than expected harvest for some crops, which will further push prices down.

These troubles are crushing BG's revenues. The company reported better than expected Q1 earnings back in April but revenues were down -19.7% and significantly below Wall Street estimates. Their Q2 results were worse. Analysts expected a profit of $1.36 a share on revenues of $14.59 billion. BG reported Q2 results of $0.50 a share. Revenues were down -35.8% to $10.78 billion. BG's Q3 numbers were not much better. Earnings were $1.24 a share, which missed estimates by 35 cents. Revenues plunged -21% to $10.79 billion, compared to estimates of $12.5 billion.

Naturally analysts have began downgrading their earnings and revenue numbers for BG, which doesn't inspire any confidence in the stock. The point & figure chart has produced a new sell signal that is forecasting at $53.00 target.

Bulls could argue that BG's stock is short-term oversold and due for a bounce. However, the S&P 500 just delivered its best one-week gain of the year and BG did not participate. Friday's intraday low was $65.32. Tonight we are suggesting a trigger to buy puts at $64.85.

- Suggested Positions -

Long JAN $65 PUT (BG160115P65) entry $2.30

12/12/15 new stop @ 64.65
12/05/15 new stop @ 67.05
12/03/15 triggered @ $64.85
Option Format: symbol-year-month-day-call-strike


F5 Networks - FFIV - close: 98.94 change: -1.56

Stop Loss: 100.85
Target(s): To Be Determined
Current Option Gain/Loss: -58.6%
Average Daily Volume = 1.1 million
Entry on December 11 at $98.36
Listed on December 10, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/17/15: The NASDAQ composite lost -1.35% today. The S&P 500 fell -1.5%. FFIV also declined -1.5%. Unfortunately shares spiked up to $100.92 first and hit our stop loss at $100.85, closing our bearish play.

- Suggested Positions -

JAN $95 PUT (FFIV160115P95) entry $2.10 exit $0.87 (-58.6%)

12/17/15 stopped out
12/15/15 new stop @ 100.85
12/15/15 FFIV bounced on news of its CEO change
12/11/15 triggered on gap down at $98.36, suggested entry was $98.75
Option Format: symbol-year-month-day-call-strike